Länsförsäkringar Bank Annual Report Contents Introduction 1 About Länsförsäkringar Bank 2 The year in brief 4 Statement by the President Operations 6 Strategy and financial position 8 Offering 10 Economic environment and market 12 Loans and credit quality 14 Funding and liquidity 16 Regulatory development 17 Sustainability 23 Board of Directors’ Report 29 Five-year summary 30 Corporate Governance Report Financial 37 Income statement statements 37 Statement of comprehensive income Group 38 Balance sheet 39 Cash-flow statement 40 Statement of changes in equity 41 Notes to the financial statements Financial 82 Five-year summary statements 84 Income statement 84 Statement of comprehensive Parent income Company 85 Balance sheet 86 Cash-flow statement 87 Statement of changes in equity 88 Notes to the financial statements 106 Auditor’s report Other 110 Board of Directors and auditor information 112 Executive management 113 Definitions 113 Financial calendar 2021 114 Addresses About Länsförsäkringar Bank Sweden’s fifth largest retail bank Länsförsäkringar Bank is a customer-owned retail bank and its strategy is to offer attrac- tive banking services to the customers of the Länsförsäkringar Alliance. Close customer relationships are created at personal meet- ings at the 128 branches of the regional insur- ance companies throughout Sweden and via digital services and telephone. The aim is to have the most satisfied customers, maintain healthy growth in volumes and profitability at low risk, and to increase the share of custom- ers who have both banking and insurance with Länsförsäkringar. According to the 2020 Swedish Quality Index customer satisfaction survey, Länsförsäkringar Bank remained the leading player in terms of customer satisfac- tion among retail and corporate customers. Länsförsäkringar Bank is the fifth largest retail bank in Sweden. Länsförsäkringar in brief Länsförsäkringar comprises 23 local, customer-owned regional insurance companies and the jointly owned Länsför- säkringar AB and its subsidiaries. Customers are provided with a complete solution for banking, insurance, pension and real-estate brokerage services through their regional insurance company. The regional insurance companies are owned by the insurance customers – there are no external shareholders and customers’ needs and requirements are always Länsförsäkringar’s primary task. Long-term respect for customers’ finances and their security is fundamental. The Länsförsäkringar Alliance jointly has slightly more than 3.9 million customers and approximately 7,500 employees. 3.9 million customers 23 local regional insurance companies Länsförsäkringar AB* Länsförsäkringar Bank AB Länsförsäkringar Hypotek AB Länsförsäkringar Fondförvaltning AB Wasa Kredit AB Retail mortgages Mutual funds Leasing, hire purchase and unsecured loans * Effective 30 December 2020, Länsförsäkringar AB’s legal name is “Gamla Länsförsäkringar AB” but is referred to as “Länsförsäkringar AB” throughout this Annual Report. Länsförsäkringar Bank 2020 About Länsförsäkringar Bank 1 The year in brief Significant events Figures in parentheses pertain to 2019 • Operating profit amounted to SEK 1,844 M (1,893) and the • The Financial Supervisory Authority has decided that, from return on equity amounted to 8.5% (9.5). the third quarter, the Länsförsäkringar Bank Group is to be • Net interest income rose 5% to SEK 4,845 M (4,617). consolidated at the sub-group level (sub-consolidated basis). • Operating income increased 6% to SEK 4,278 M (4,027). • The Common Equity Tier 1 capital ratio for the Consolidated • Operating expenses amounted to SEK 2,109 M (1,926). Situation on 31 December 2020 amounted to 16.7% (16.4*) • Credit losses amounted to SEK 325.5 M (207.2), net, and for the Bank Group to 14.9% (14.3*). corresponding to a credit loss level of 0.09% (0.06). • The number of customers with Länsförsäkringar as their • Business volumes increased 11% to SEK 729.4 billion (656.0). primary bank increased 6% to 586,000 (553,000). • Deposits rose 14% to SEK 136.4 billion (119.3). Lending • According to the 2020 Swedish Quality Index customer sat- increased 11% to SEK 340.0 billion (307.1). isfaction survey, Länsförsäkringar Bank remains the leading player for customer satisfaction among retail and corporate • Fund volume increased 10% to SEK 253.0 billion (229.6). customers. * Refers to 30 September 2020. Business volumes and net interest income Primary bank customers and market shares SEK bn SEK M Customers, thousands % 800 8,000 600 12 700 7,000 500 10 600 6,000 400 8 500 5,000 Mutual funds 400 4,000 300 6 Deposits 300 3,000 Mortgages 200 4 200 2,000 Agricultural loans Primary bank customers, 000s Other loans 100 2 100 1,000 Market share, retail mortgages Net interest income, Market share, retail deposits 0 0 SEK M 0 0 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 Total business volumes have increased an average of 13% over the past The number of customers with Länsförsäkringar as their primary bank five years. Net interest income has risen an average of 10%. has risen an average of 9% over the past five years. The market position was continuously strengthened. Key figures SEK M 2020 2019 2018 2017 2016 Return on equity, % 8.51 9.48 8.34 10.0 10.1 Return on total assets, % 0.35 0.38 0.34 0.41 0.42 Investment margin, % 1.18 1.21 1.30 1.32 1.28 Cost/income ratio before credit losses 0.49 0.48 0.58 0.49 0.48 Common Equity Tier 1 capital ratio, Bank Group, % 14.9 13.9 14.2 24.3 24.8 Tier 1 ratio, Bank Group, % 16.9 16.0 15.5 26.8 27.5 Total capital ratio, Bank Group, % 19.3 18.5 18.2 32.1 33.4 Common Equity Tier 1 capital ratio, consolidated situation, % 16.7 15.4 15.7 23.3 21.2 Tier 1 ratio, consolidated situation, % 17.7 16.0 16.5 24.8 23.2 Total capital ratio, consolidated situation, % 19.0 16.6 18.3 28.1 27.6 Share of credit-impaired loan receivables (stage 3), % 0.22 0.20 0.17 – – Reserve ratio for loan receivables stage 1, % 0.05 0.03 0.02 – – Reserve ratio for loan receivables stage 2, % 2.78 1.98 1.60 – – Reserve ratio for loan receivables stage 3, % 35.2 34.6 32.6 – – Reserve ratio for loan receivables stage 3, incl. withheld remuneration to regional insurance companies, % 39.9 40.2 37.0 – – Credit losses in relation to loans, % 0.09 0.06 0.04 0.02 0.02 2 The year in brief Länsförsäkringar Bank 2020 Fund range with a green sustain­ ability rating Länsförsäkringar’s fund range enjoys a high sustainability ranking, for example, in the annual analyses of the major insurance bro- kers, in which we won a green rating and high scores in 2020. Länsförsäkringar applied stricter criteria to investments in gambling, oil and gas companies. A Gröna Lövet (Green Leaf) label was also introduced for funds with a low climate risk. Customer interest in sus- tainability-focused equities funds and funds with low climate risk increased in 2020, and the share of purchases of this type of fund rose 40% compared with 2019. First globally with recycled plastic cards Länsförsäkringar Bank’s customers were the first in the world to receive bank cards made of 100% recycled plastic, which reduces impact on the environment. Länsförsäkringar Bank and COVID­19 2020 was a year unlike any other. The COVID-19 pan- demic severely impacted society and the situation was challenging for many, both companies and private indi- viduals alike. Given the uncertainty in the world, it is very important to ensure a high level of availability for Strong brand Most innovative customers and continue to offer the security and excellent service that are the hallmarks of Länsförsäk- Länsförsäkringar was named company in the ringar’s entire offering. Our strong position combined Sweden’s strongest brand in finance industry with our local presence create solid conditions for insurance at the Swedish Brand According to the Swedish Innova- supporting our bank customers. Länsförsäkringar has Award for the seventh consecu- tive year. Länsförsäkringar also tion Index, Länsförsäkringar was taken important initiatives across the country to sup- had the highest reputation in the the most innovative company in the port customers, local companies, clubs and associa- insurance industry according to finance industry in 2020. Overall, tions and the health care sector, all of which have been Kantar Sifo’s 2020 reputation Länsförsäkringar came seventh – severely affected by the COVID-19 pandemic. survey. proof that Länsförsäkringar’s devel- opment activities are making a dif- ference in customers’ everyday lives. Länsförsäkringar Bank 2020 The year in brief 3 Customer security in focus during turbulent times Statement by the President 2020 will be remembered as an extraordinary 12 months to say the least. The COVID-19 pandemic clearly left its mark on the year and brought with it many challenges for Swedish society and the global economy. Länsförsäkringar Bank focused on ensuring high availability for customers and we worked intensely during the year to continue to offer customers the security and excellent service that are the hallmarks of our company. Focus on customer security year as we can clearly see in the increase in deposits. Fund volumes 2020 will be synonymous with the COVID-19 pandemic that domi- also performed well and the inflow to our funds during the year was nated the past year. The worldwide outbreak of COVID-19 at the end high. Lending continued to trend well and we can confirm that our of February quickly impacted the entire global economy and not least large mortgage portfolio retained its very high credit quality and the Swedish society. Both companies and private individuals experi- credit loss level remains low.